Housing Stocks Continue to Ignore the News

At this point the "Decoupling" between reality and the stocks in some areas is reaching amusing proportions. I own 2 homebuilders, not because I believe in any imminent rebound, but because no amount of bad news can bring them down anymore. In fact, days like this are exactly why I own them - to counterbalance the commodity / global growth positions I own such beauties as Lennar (LEN) up 4%.

So when I put on my stock jockey hat I say "everything will be fine in 6 months, buy buy buy". And that's about the depth of my analysis.

When I put on my economist/strategy hat I continue my long held stance that we are still in the early innings (I've moved us up to 3rd/4th inning now that new home prices are being slashed) but if you look at the news flow, it is amusing when overlayed with the stock performance. You could say that for the whole stock market, but this group in particular. Remember, reality does not count in the stock market - only perception. Perception is things are going to be fine "in due time"... on the other hand MY reality is 2008 will be the year of the 'walk away" (people send it keys, and walk away from homes they are underwater on) , inventory numbers are at record levels but do not reflect the "trapped" people - people who want to sell but either (a) refuse to face reality and book their loss or (b) don't have enough money to bring to the table at closing to sell their underwater home, credit tightening so even less home owners are available to sap up inventory, people who feel like they are in a recession are not going to be rushing to buy homes, people whose real wages (adjusted for inflation) are becoming poorer by the day, so their buying power is falling (for homes as well), many potential buyers who should be ready to buy now were sucked in early in 2005-2007 by no down, cheap rate mortgages so that pool of people is nowhere to be found, foreclosures are just beginning as people begin to give up, and it still takes 6 months for inventory to come to the market, and median prices are still too high in most major urban areas for average people with average wages. That's 2008. 2009? Not much better. Get back to me in late 2009/early 2010.

But since none of that matters ("it's all priced in"), we have homebuilder stocks in our portfolio - and they go up on days like this when we see Case/Schiller Price Index shows nearly 13% year over year median NATIONAL price reductions (ouch), and foreclosures are at record levels. Thankfully, this will all be past us in "6 months".

• Home prices have posted another record decline, as most of the nation's largest markets suffered double-digit drops over last year, a survey released Tuesday shows.
• The S&P Case/Shiller Home Price Index, which tracks 20 of the largest housing markets, showed prices plummeting by 12.7% in the 12 months ending February. That's the biggest fall since the index began tracking prices in 2000.
• Of those 20 metro areas, 17 posted their largest year-over-year declines ever. Ten of the 20 cities posted double-digit dips.
• "There is no sign of a bottom in the numbers," S&P spokesman David M. Blitzer, said in a prepared statement. "Prices of single family homes continue to drop across the nation."
• "This is huge," said Dean Baker, an economist with the Economic Policy Institute. "Back a couple of years ago, people were saying, 'Housing prices are not like stocks; they change slowly,'" he said. But the drop in home prices appears to be accelerating. Indeed, Baker said that at the rate prices are falling, as much as $6 trillion in home values could be wiped out from the top of the market in June, 2006, through the end of this year. (what's a few trillion among friends? Uncle Ben and his merry band are printing 24/7 to help replace this lost value - replace one bubble with the next)
  
• Prices in the Las Vegas metro area have plunged more than any other city, down 22.8% over the 12 months through February. Miami prices plummeted 21.7%. In Phoenix, they've fallen 20.8%. (so let's review, plunging tax revenues, with government loaded with workers, who need to cut either services or increase revenue - yes you guessed it job losses at the state and local level combined with higher taxes for the minions - all sounds like a recipe for a recovery in "6 months")
• The declines create a vicious cycle, according to Peter Schiff, the president of the investment firm Euro Pacific Capital. He was sounding alarms about the housing bubble more than two years ago. "People wanted houses as vehicles to make money," said Schiff. "Now that they can't make money, they don't want the houses anymore."

On to foreclosures

• The number of U.S. homes heading toward foreclosure more than doubled in the first quarter from a year earlier, as weakening property values and tighter lending left many homeowners powerless to prevent homes from being auctioned to the highest bidder, a research firm said Monday.
• On Monday, the Census Bureau reported that the number of vacant homes for sale has hit a record high. The report shows that 2.9% of U.S. homes -- excluding rental properties -- were vacant and up for sale in the first quarter. That translates to about 2.28 million properties - the highest quarterly number on record since 1956.
• Nationwide, 649,917 homes received at least one foreclosure-related filing in the first three months of the year, up 112 percent from 306,722 during the same period last year, RealtyTrac said.
• The latest tally also represents an increase of 23 percent from the fourth quarter of last year.

With my stock market hat on, I am debating whether this is great news or incredibly great news - it falls somewhere in between the two. I mean any news is good news, so this news is better than "any news". All I know is the bull case for a 2nd half recovery is shaping up beautifully; everything is discounted from here to 2037. Buy stocks.

Long Lennar in fund and personal account